Tequila grows up, gets more expensive

By Nick Passmore

updated 3:28 p.m. ET May 1, 2008

You've come a long way, chica! And you too, chico!

To borrow the sentiments, if not the exact words, of that old Virginia Slims advertisement and apply it to tequila today seems particularly appropriate. Over the last few years this outlaw beverage favored by the less-than-salubrious denizens of Margaritaville has really come of age.

Only a generation ago, tequila was little more than a frat party intoxicant, the ingredient of "lick, shoot, and suck," that college rite of passage involving the consumption of a shot of cheap tequila along with a lick of salt and a wedge of lime. So downmarket was its image that the very thought of a super-premium tequila was an oxymoron, and the idea that a bar might charge $20 for a shot was unimaginable.

Given its previously déclassé reputation, the transformation of tequila into the sophisticated drink of today's hip urban professional is even more remarkable. As Andrew Floor, senior brand director for Sauza and El Tesoro tequilas, points out, "People are getting their eyes opened to the fact that tequila doesn't have to be challenging, it doesn't have to be about pinching your nose, throwing it down, and hoping it stays down…and a massive headache the next day."

This image makeover has proved highly profitable, too. Americans can't seem to get enough of Mexico's native spirit. According to the Distilled Spirits Council of the U.S. (DISCUS), since 2002 U.S. imports of tequila have grown 46%, to just over 10 million cases, producing gross revenue of $1.55 billion.

More telling is the fact that imports of super-premium tequila during the same period have dramatically outperformed the category as a whole. As DISCUS points out, "While value and premium brands are the backbone of the U.S. market, the fastest growth has been in high-end and super-premium brands," with high-end averaging 15.6% and super-premium averaging a robust 30.8% annual growth since 2002.

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For Tom Herbst, reserve-brand director at spirits giant Diageo, the last five years have been "a very exciting time…especially for ultra-premium tequila, including Don Julio, which has seen tremendous growth, with a 54% sales increase. In fact, Don Julio has grown more than 35% in the last year alone."

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